Continuing Guarantee in Banking Contracts

A continuing guarantee is a guarantee that applies to a series of transactions or debts. It is a type of suretyship in which the surety’s liability continues until the principal debtor’s obligations are discharged.

Characteristics of Continuing Guarantee

The following are the characteristics of a continuing guarantee:

  • It applies to a series of transactions or debts.
  • The surety’s liability continues until the principal debtor’s obligations are discharged.
  • The surety’s liability is not limited to a specific amount.
  • The surety may be released from their liability if the creditor releases them from the guarantee agreement.

Difference between Continuing Guarantee and Simple Guarantee

The main difference between a continuing guarantee and a simple guarantee is that a continuing guarantee applies to a series of transactions or debts, while a simple guarantee applies to a single transaction or debt.

Types of Continuing Guarantee

There are two main types of continuing guarantee:

  • Unlimited continuing guarantee: In an unlimited continuing guarantee, the surety’s liability is not limited to a specific amount.
  • Limited continuing guarantee: In a limited continuing guarantee, the surety’s liability is limited to a specific amount.

Revocation of Continuing Guarantee

A continuing guarantee can be revoked by the surety, but only if the revocation is in writing and is given to the creditor. The surety may also be released from their liability if the creditor releases them from the guarantee agreement.

MCQs on Continuing Guarantee in Banking Contracts

  1. Which of the following is not a characteristic of a continuing guarantee?
    • It applies to a series of transactions or debts.
    • The surety’s liability is limited to a specific amount.
    • The surety’s liability continues until the principal debtor’s obligations are discharged.
    • The surety may be released from their liability if the creditor releases them from the guarantee agreement.
    • Answer: The surety’s liability is limited to a specific amount. The surety’s liability in a continuing guarantee is not limited to a specific amount.
  2. A continuing guarantee can be revoked by the surety. Is this always true?
    • No, this is not always true. The surety may only revoke the guarantee if the revocation is in writing and is given to the creditor.
  3. A continuing guarantee can be released by the creditor. Is this always true?
    • No, this is not always true. The creditor may only release the surety from the guarantee if the release is in writing and is signed by the creditor.
  4. A continuing guarantee can be revoked by the surety even if the principal debtor has not defaulted on their obligations. Is this always true?
    • No, this is not always true. The surety may only revoke the guarantee if the surety has a valid reason for doing so.
  5. A continuing guarantee can be released by the creditor even if the principal debtor has not defaulted on their obligations. Is this always true?
    • No, this is not always true. The creditor may only release the surety from the guarantee if the creditor has a valid reason for doing so.